1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002 Commission File No.
0-6119
TRI-VALLEY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-0617433
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 BUSINESS PARK SOUTH, SUITE 200, BAKERSFIELD, CALIFORNIA 93309
(Address of principal executive offices)
(661) 864-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ]
The number of shares of Registrant's common stock outstanding at June 30, 2002
was 19,703,748.
TRI-VALLEY CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2002 Dec 31, 2001
(Unaudited) (Audited)
------------ -----------
Current Assets
Cash . . . . . . . . . . . . . $ 2,019,640 $ 911,913
Accounts receivable, trade . . 113,499 107,225
A/R Related Parties. . . . . . 1,000 -0-
Prepaid expenses . . . . . . . 12,029 12,029
------------ -----------
Total Current Assets . . . . 2,146,168 1,031,167
------------ -----------
Property and Equipment, Net. . . 1,986,080 2,010,457
------------ -----------
Other Assets
Deposits . . . . . . . . . . . 104,705 104,705
Investments in partnerships. . 9,101 9,101
Other. . . . . . . . . . . . . 13,913 13,913
Goodwill (net of accumulated
amortization of $221,439 at
at December 31, 2001). . . . 212,414 212,414
------------ -----------
Total Other Assets . . . . 340,133 340,133
------------ -----------
Total Assets . . . . . . . $ 4,472,381 $ 3,381,757
============ ===========
The accompanying notes are an integral part of these
condensed financial statements.
5
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 2002 Dec. 31, 2001
--------------- ---------------
CURRENT LIABILITIES
Notes and contracts payable. . . . . $ 7,353 $ 8,265
Trade accounts payable . . . . . . . 340,613 297,001
Amounts payable to joint venture
participants . . . . . . . . . . . 62,264 59,631
Advances from joint venture
participants . . . . . . . . . . . 4,311,597 2,654,713
--------------- ---------------
Total Current Liabilities. . . . . 4,721,827 3,019,610
--------------- ---------------
Long-term Portion of Notes and
Contracts Payable. . . . . . . . . . 7,477 8,371
--------------- ---------------
Shareholders' Equity
Common stock, $.001 par value:
100,000,000 shares authorized;
19,703,748 and 19,689,748 issued
and outstanding at June 30, 2002
and Dec. 31, 2001, respectively. . 19,704 19,690
Less: Common stock in treasury,
at cost, 163,925 shares . . . . . . (21,913) (21,913)
Capital in excess of par value . . . 8,760,339 8,746,653
Accumulated deficit. . . . . . . . . (9,015,054) (8,390,654)
--------------- ---------------
Total Shareholders' Equity . . . . (256,923) 353,776
--------------- ---------------
Total Liabilities and
Shareholders' Equity . . . . . . $ 4,472,381 $ 3,381,757
=============== ===============
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
2002 2001 2002 2001
------------ ----------- ------------ -----------
Revenues
Sale of oil and gas . . . . . . . . . . . $ 189,942 $ 544,648 $ 355,396 $ 1,273,762
Other income. . . . . . . . . . . . . . . 24,927 64,256 39,998 73,692
Sale of direct working interest . . . . . 637,390 -0- 637,390 -0-
Interest income . . . . . . . . . . . . . 4,982 5,242 7,191 16,502
------------ ----------- ------------ -----------
Total Revenues. . . . . . . . . . . . . 857,241 614,146 1,039,975 1,363,956
------------ ----------- ------------ -----------
Cost and Expenses
Oil and gas lease expense. . . . . . . . 87,965 146,918 137,688 242,544
Mining Exploration Expenses . . . . . . . 11,693 21,586 42,817 55,382
Project geology, geophysics,
Land & administration . . . . . . . . . 175,035 103,983 266,188 201,954
Cost of Sale of direct working interest . 627,687 -0- 627,686 -0-
Depletion, depreciation and amortization. 12,981 13,631 25,963 29,732
Interest. . . . . . . . . . . . . . . . . 229 435 477 2,756
General administrative. . . . . . . . . . 301,934 263,387 563,555 515,128
------------ ----------- ------------ -----------
Total Cost and Expenses . . . . . . . . 1,217,524 549,940 1,664,374 1,047,496
------------ ----------- ------------ -----------
Net Income (Loss) . . . . . . . . . . . . . $ (360,283) $ 64,206 $ (624,399) $ 316,460
============ =========== ============ ===========
Diluted Earnings per Share. . . . . . . . . $ .00 $ .00 $ .00 $ .02
============ =========== ============ ===========
Basic Earnings per Share. . . . . . . . . . $ .00 $ .00 $ .00 $ .02
============ =========== ============ ===========
Weighted Average Number of Shares . . . . . 19,703,748 19,661,081 19,703,748 19,661,081
============ =========== ============ ===========
7
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
---------------------
Ended June 30,
----------------
2002 2001
----------- -----------
Cash Flows from Operating Activities
Net loss/profit . . . . . . . . . . . . . . . . . . . . . $ (624,399) $ 316,460
Adjustments to reconcile net income
to net cash used from operating activities:
Depreciation, depletion and amortization. . . . . . . 25,963 29,732
Shares issued officer compensation. . . . . . . . . . 11,700 -0-
Changes in operating capital:
Amounts receivable-(Increase)decrease . . . . . . . . (7,274) 391,647
Trade accounts payable-Increase(decrease) . . . . . . 42,700 (459,834)
Amounts payable to joint venture
participants and related parties-Increase(decrease) 2,633 (266,967)
Advances from joint venture
Participants-Increase(decrease) . . . . . . . . . . 1,656,884 (382,913)
----------- -----------
Net Cash Used by Operating Activities . . . . . . . . . . . 1,108,207 (371,875)
----------- -----------
Cash Flows from Investing Activities
Capital expenditures. . . . . . . . . . . . . . . . . . . (1,586) (259,446)
----------- -----------
Cash Flows from Financing Activities
Principal payments on long-term debt. . . . . . . . . . (894) (4,248)
Proceeds from issuance of common stock. . . . . . . . . . 2,000 54,500
----------- -----------
Net Cash Provided (used) by Financing Activities. . . 1,106 50,252
----------- -----------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . 1,107,727 (581,069)
Cash and Cash Equivalents at Beginning
Of Period . . . . . . . . . . . . . . . . . . . . . . . . 911,913 1,373,570
----------- -----------
Cash and Cash Equivalents at
End of Period . . . . . . . . . . . . . . . . . . . . . . $2,019,640 $ 792,501
=========== ===========
Supplemental Information:
Cash paid for interest. . . . . . . . . . . . . . . . . . $ 477 $ 2,756
Cash paid for taxes . . . . . . . . . . . . . . . . . . . $ 5,137 $ 7,779
TRI-VALLEY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
-----------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for the
six-month period ended June 30, 2002, are not necessarily indicative of the
results to be expected for the full year.
The accompanying consolidated financial statements do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles; and, therefore, should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
NOTE 2 - PER SHARE COMPUTATIONS
------------------------
Per share computations are based upon the weighted average number of common
shares outstanding during each year. Common stock equivalents are not included
in the computations since their effect would be anti-dilutive.
13
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
----------------------------------------------------------------------
OF OPERATIONS
--------------
BUSINESS REVIEW
Notice Regarding Forward-Looking Statements
----------------------------------------------
This report contains forward-looking statements. The words, "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "could," "may,"
"foresee," and similar expressions are intended to identify forward-looking
statements. These statements include information regarding expected development
of the Company's business, lending activities, relationship with customers, and
development in the oil and gas industry. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
Petroleum Activities
---------------------
We drilled the Sonata 3-1 in May and began testing and evaluating the results.
We have determined that the Sonata 3-1 is a dry hole and will be abandoned.
Subsequent to June 30, 2002, we decided that we have thoroughly tested and
evaluated this Sonata prospect and do not believe it will be a successful
project. Therefore, we are discontinuing operations on the Sonata project and
writing off all costs associated with this play as of June 30, 2002.
We spudded the Sunrise-Mayel No. 2-H on July 12, 2002. We expect the drilling
to take approximately 20 days after which we will begin testing which will take
another 6 or 7 weeks.
In the second quarter we continued to focus on the OPUS-I private placement
memorandum. The documentation was completed in mid May and we are currently
pursuing the capital formation for this partnership. The OPUS-I is a
partnership to drill up to 23 individual prospects in California's San Joaquin
Valley and up to three prospects in Nevada's Railroad Valley.
Precious Metals
----------------
There has been no physical activity on our Alaska claim block during the first
two quarters of this year. We do have plans to drill one deep placer and two
lode targets in the third quarter pending funding. However, we did spend
$42,816 on mining claims and miscellaneous expenses during this period.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
----------------------------------------------------------------------
OF OPERATIONS, CONTINUED
--------------------------
Three Months Ended June 30, 2002 as compared with Three Months ended June 30,
--------------------------------------------------------------------------------
2001
----
In the quarter ended June 30, 2002, we recorded a net loss of $360,283, compared
to a net gain of $64,206 in the second quarter of 2001. The main reason for the
loss was a decrease of $354,706 (65%) in oil and gas revenue due to lower
natural gas prices in 2002. In the second quarter of 2002 we received an
average price of $2.23 per mcf (thousand cubic feet) of our natural gas compared
to $12.42 per mcf for the same period in 2001. The decrease in oil and gas
income approximately equaled our net loss for the quarter.
Total revenues and total expenses rose in the second quarter of 2002 compared to
2001 because of our drilling results on the Sonata project. In the second
quarter of 2002, we drilled the Sonata 3-1 well and determined it was a dry
hole. Shortly after the end of the quarter, we decided to cease further
development efforts on the Sonata project. Because of this decision, as of June
30, 2002, we recognized all previously unrecorded revenue and capitalized
expenditures pursuant to our joint operating agreement for the Sonata 3-1, as
sale of direct working interest of $637,390, and we recorded an offsetting
expense of $627,687 associated with the well, as cost of sale of direct working
interest.
In the second quarter 2002 we had a decrease of $39,329 in other income,
compared to the second quarter of 2001, due to receiving no distribution from a
gas partnership in which we are a non-operating partner.
Overall, mainly as a result of ceasing operations on the Sonata project, both
total revenues and expenses rose in the second quarter of 2002. Our total
revenues rose by $243,095 to $857,241 in the three months ended June 30, 2002,
compared to the same period in 2001. Total expenses rose by $667,584 to
$1,217,524 in the quarter, compared to the same period in 2001.
Oil and gas lease expenses were $58,953 less in the current quarter compared to
the same quarter last year due to less well work over expenses in 2002. Our
project geology, geophysics, land and administration costs were higher in the
quarter ended June 30, 2002 because of increased land acquisition costs and
geologic work over the same period last year. Our mining costs are reduced this
year over last year because we did not have any active Alaska exploration
activities this year due to lack of funds available. Finally, general and
administrative expenses rose by 15% over the same quarter last year mainly due
to increased legal costs associated with the private placement memorandum and
office lease expenses.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
----------------------------------------------------------------------
OF OPERATIONS, CONTINUED
--------------------------
Six Months Ended June 30, 2002 as compared to Six Months Ended June 30, 2001
--------------------------------------------------------------------------------
We had a loss of $624,399 for the current six-month period compared to a profit
of $316,460 for the same six-month period in 2001. This loss is due mainly from
lower natural gas prices in 2002 compared to 2001. Oil and gas sales revenues
fell by $918,276 (72%) in the first half of 2002 compared to the first half of
2001. In the first six months of 2002 we averaged $2.55 for our natural gas
compared to an average of $11.27 for the six months ended June 30, 2001.
Because of the discontinuation of the Sonata project, discussed in the preceding
section, we reported sales of direct working interest of $637,390 for the six
months ended June 30, 2002. Similarly, and we recorded a cost of sale of direct
working interest on the Sonata project of $627,687 in the six month period in
2002.
We had reduced other income by $33,694 in the first half of 2002 compared to the
first half of 2001 because of reduced income from a gas partnership in which we
are a non-operating partner.
We had a decrease in oil and gas lease expense of $104,856 because we had
reduced work over expenses and an increase of $64,234 in geology and land
acquisition costs. Our general and administrative costs are $48,427 higher in
the period ending June 30, 2002 compared to the same period in 2001. This is
due to increased legal costs associated with the private placement memorandum
and increased rent for office facilities.
Capital Resources and Liquidity
----------------------------------
Current assets are $2,146,168 at June 30, 2002 compared to $1,031,167 as of
December 31, 2001. This is due to an increase of $1,107,727 in cash from our
capital formation program OPUS I. Current liabilities are $4,721,827 for the
six months ended June 30, 2002 compared to $3,019,610 for the period ended
December 31, 2001. This increase is due to advances from joint venture
participants in our drilling programs.
Operating Activities. We had a positive cash flow of $1,108,207 for the six
months ended June 30, 2002 compared to a negative cash flow of $371,875 for the
same period in 2001. This change is due to funds acquired in 2002 from joint
venture participants for drilling activity. Our primary source of funds is
comprised of selling prospects and oil and gas sales.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
----------------------------------------------------------------------
OF OPERATIONS, CONTINUED
--------------------------
Investing Activities. In the second quarter of 2002, we expensed $227,985 of
capital expenditures that had been capitalized related to the Sonata project,
which reduced our total capital expenditures (which result from lease
acquisitions) for the first six months of 2002 to $1,586 compared to $259,446
for the first half of 2001
Financing Activities. Net cash provided by financing activities was $1,106
compared to $50,252 for the same period in 2001. This $49,146 decline was due
to us receiving $54,500 dollars from sales of our common stock in the first six
months of 2001 compared to $2,000 this year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------------------
None
ITEM 2. CHANGES IN SECURITIES
-----------------------
During the quarter ended June 30, 2002, we issued 2,000 shares of our common
stock to an individual in a private transaction pursuant to the exemption
contained in Section 4(2) of the Securities Act of 1933, for aggregate
consideration of $1,000. These shares were from options exercised by an
ex-employee. The shares are restricted securities, which bear a legend
restricting transfer of the shares unless registered or sold under an exemption
from registration requirements under the Securities Act. The exercise price for
these shares was $.50 each.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRI-VALLEY CORPORATION
(Registrant)
August 12, 2001 /s/ F. Lynn Blystone
------------------------
F. Lynn Blystone
President and Chief Executive Officer
August 12, 2001 /s/ Thomas J. Cunningham
---------------------------
Thomas J. Cunningham
Secretary, Treasurer, Chief Financial Officer
CERTIFICATION
Each of the undersigned hereby certifies that this Quarterly Report on Form 10-Q
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, and the information contained in such report
fairly represents, in all material respects, the financial condition and results
of operations of the Company.
August 12, 2001 /s/ F. Lynn Blystone
----------------------
F. Lynn Blystone
President and Chief Executive Officer
August 12, 2001 /s/ Thomas J. Cunningham
---------------------------
Thomas J. Cunningham
Secretary, Treasurer, Chief Financial Officer